Shares of GrowGeneration (GRWG -0.39%) got hammered earlier this month after the company reported second-quarter earnings. The stock fell 17% in one day, and has continued falling since. It is now down 31% since the report was released.

With the retailer for hydroponic and organic gardening supplies now having lost more than half its value since hitting its peak back in February, would your investment be ahead or underwater today if you had invested $1,000 back when GrowGeneration first began trading on the Nasdaq exchange in 2019?

It's been 20 months since then, so let's take a closer look at what happened -- and whether your investment would be a soggy mess.

Man with laptop in marijuana grow room

Image source: Getty Images.

Turning pennies into dollars

GrowGeneration started out as a penny stock trading over-the counter, but quickly upgraded from the venture stage exchange to the OTC's "best market" in 2017 after meeting more stringent financial and stock trading rules. Two years later, the hydroponic gardener upgraded its digs once more to the Nasdaq.

Although investors could (and did) invest in GrowGeneration while it was a pink-sheet penny stock, many were more comfortable getting into the stock once it was included on a major exchange. Considering the marijuana industry is already something of a crapshoot, with some of the biggest, most well-recognized names beaten down by a snarled mess of regulation, there's at least a veneer of safety trading on one of the big markets that's not present in the pink sheets.

GrowGeneration opened for trading on the Nasdaq on Dec. 2, 2019, at a price of $4.90 per share. Let's see how the business has progressed since then and what that did to the stock price. 

Growing like a weed 

GrowGeneration started off with 14 locations in four states, offering plant nutrition, growing media, lighting technology, and equipment for hydroponic and aquaponic growing. By the end of 2019, it was selling those products in 25 stores across eight states. Today, GrowGeneration has expanded to 58 stores in a dozen states, and expects to be in 14 by the end of the year. 

Sales have similarly expanded. Last year the company posted revenue of $193.3 million, a 143% increase from the $80 million it generated the year before, and profits quadrupled from $1.3 million to over $5.3 million.

So far in 2021, GrowGeneration is still showing green. Revenue is up 189% to $125.9 million, while net income hit $12.8 million, compared with $480,000 at the same time last year. Comparable sales are also roaring ahead, up 60% in the second quarter compared to one year ago.

hydroponic marijuana grow operation

Image source: Getty Images.

A growth spurt

That ramping up of growth explains why GrowGeneration has seen its stock soar from under $5 a share when it began trading on the Nasdaq to almost $30 per share today, a 500% gain. 

Put another way, the hydroponic gear retailer has had an annualized return of over 345% since its exchange got upgraded, far greater than the returns of the S&P 500, the Dow Jones Industrial Average, or even most other cannabis industry stocks.

Yet since the start of 2021, GrowGeneration's stock is down 27%. What gives?

The short answer is: Wall Street wasn't happy with guidance. CEO Darren Lampert told analysts in the Q2 conference call that while states like New York and New Jersey are now opening up to personal-use marijuana, they've been dragging their feet on licensing. GrowGeneration has also been hit by the massive inflation spike that's ground many businesses down, making it too expensive to build.

"We had four operations that we thought would be operational early third quarter, even late second quarter," Lampert said, "but we're sitting there really because of building supply issues."

A generation gap

Although some analysts have tempered their price targets on GrowGeneration because of the slower-than-expected rollout, they have maintained their buy ratings on its shares because of the tremendous opportunity that exists in selling gear to marijuana growers.

Had you $1,000 invested in GrowGeneration back in late 2019, it would be worth $5,113 today. And, given that analysts are looking for its stock to nearly double over the next year, this could still be an undervalued business for interested cannabis investors.